MORE PRESSURE ON DAIRYING - TPP STALLING

There have been reports over the weekend from Washington and Tokyo that a hoped-for Ministerial round of talks this month to resolve outstanding issues may now not happen.

That means any signing of the agreement at APEC in Manila in mid-November is unlikely to take place.

This development will add further pressure to the already depressed New Zealand dairy industry.

One of the core sticking points in the remaining negotiations is access for dairy products --- the main “win” that New Zealand wants from the TPP.

Nikkei has reported an offer from Japan of a low-tariff quota for butter, skimmed milk powder and dairy products that could be produced from 70,000 tonnes of raw milk to be shared among the US, Australia and NZ.

Canada is believed to have made a similar offer to Japan --- a TPP wide quota linked to tariffs.

Ten days ago, Dairy Companies’ Chairman and Fonterra director, Malcom Bailey described the offers as “woeful”.

But despite the difficulties for New Zealand with dairy access, US Secretary of State John Kerry believes the deal can be done this year.

Speaking in Hanoi on Friday he said many challenges remained in thrashing out a Trans-Pacific Partnership (TPP), particularly on issues of autos and dairy, but the United States would do everything in its power to make it happen.

“There are a few remaining issues … which I am confident will be resolved,” Kerry told a news joint conference with Vietnamese Foreign Minister Pham Binh Minh in Hanoi.

“We are hoping very much that over the course of the next couple of months, before the end of the year, TPP can be completed,” he said.

Meanwhile over the weekend the focus of the dairy industry has shifted to Fonterra’s “Black Friday” payout forecast drop to $3.85 a kg.

Labour Leader Andrew Little said the industry was now in crisis.

And Fonterra CEO, Theo Spierings said the whole milk powder price at last week’s Global Dairy Trade auction was “below the bottom”.

That was a reference to the EU intervention price below which the EU intervenes and buys dairy production.

Currently that is set for skim milk powder at $NZ2812 a tonne; at last week’s Global Dairy Trade auction, the skim powder only achieved a price of $NZ1419 a tonne --- half the EU price.

Speaking on TV3’s “The Nation” Mr Spierings said the prices, below the level of Europe were “absolutely not sustainable”.

But the level of the prices has led to questions about the global dairy trade auction system which was set up by Fonterra in 2008.

Waikato Federated Farmers President, Chris Lewis, has called for the auctions to be put on hold.

The slump in dairy prices means few farmers will be making money, with farmers facing two seasons of low prices.

The auction was exacerbating dairy market volatility and the extent of the drop, he said.

"It's a major contributor to the decline.

“It's been gamed by buyers and the price for that is being paid by [the] New Zealand farmer."

He called for an industry-wide discussion on whether it should be temporarily suspended until the market improved.

He said Fonterra should have halted the auction when whole milk powder prices reached $2000 a tonne.

"That would have been leadership.

“They should have said: 'That is our reserve, buy our good quality product at no less than $2000'.

"It's madness, devoid of any common sense to keep [the] GDT operative in these times."

And he was backed up yesterday by NZ First Leader Winston Peters who said we should have temporarily suspended our participation and the global dairy trade auction.

“It is high time Fonterra’s board comes down from Mt Olympus to act in the best interests of its farmer-owners and not some economic theory

“Auctions are great in bull markets like the Auckland property bubble, but it is a terrible way to sell when markets turn ugly, as the record low price for Whole Milk Powder indicates.

“This is a call to suspend Fonterra’s participation in GDT as opposed to leaving it completely. “

Mr. Peters said Fonterra last year suspended the sale of milk protein concentrate on the auction platform.

Meanwhile Mr. Spierings also had questions about the auctions.

“We have to look at some more drastic thinking around our global dairy trade auction, because in Europe there's a kind of a bottom created by governments, and we don't have that,” he said.

The fact that the CEO of Fonterra is so openly critical of the way the Global Dairy Trade auction has worked is unlikely to be lost on farmers.

And if the TPP fails to end up with substantial gains for the New Zealand dairy industry, the political pressure on Fonterra’s leaders --- and the Government --- from the dairy heartland could grow enormously.